No flood cover solution in sight

Secretary of state says flood insurance legislation unlikely before spring 2014

The AA has said that finding a way to ensure continuing insurance cover for homes at risk of flooding is 'more urgent than ever', as Rt Hon Owen Paterson MP, Secretary of State,
Department for Environment, Food and Rural Affairs, admitted to cross-party MPs that 'no legislation was likely before next spring'.

The Secretary of State was giving evidence to the Select Committee on the Environment, Food and Rural Affairs on Tuesday 26 March.

It is vital that the government shares some of the burden of a risk that the government's own chief scientist has warned will only increase.

Simon Douglas, director of AA Insurance

AA says ABI proposal is best way forward

As if there wasn't enough pressure on the government and the home insurance industry to develop a replacement of the current 'statement of principles', which expires on 30 June, the government's chief scientist has warned of 'more floods' as the evidence for climate change is 'unequivocal'.*

Simon Douglas, director of AA Insurance, one of the UK's leading home insurance brokers, says that if no solution is reached then market pressures will place those at highest risk unable to obtain affordable cover.

"The secretary of state confirmed that the government is 'determined to come to a solution' and that 'intensive' talks with the ABI continue, which I welcome. 

"But he offered no clue as to what that solution might look like, except to suggest that whatever conclusion is reached would require primary legislation, and that that is highly unlikely to be reached before the end of June, or be introduced before spring 2014.

"In the interim, he said that it may be necessary to 'continue the statement of principles at a temporary measure'."

However, Mr Douglas says that the statement of principles doesn't impose a cap on price, and while it may ensure that affected homes can continue to obtain cover, affordable insurance is what is needed. "That won't happen unless and until a more robust system, which all homeowners are likely to have to contribute to, is in place," he points out.

MPs and the secretary of state recognised that not reaching a solution would make those homes most at risk of flooding un-mortgageable and impossible to sell.

Mr Douglas says that the insurance market is already moving towards charging more for properties at risk of flooding, regardless of the existence of the statement of principles.

"The point is, cover will become either unaffordable, if it is available at all, or offered with an unaffordable excess for a flood claim. Already there are homes where the excess – that is the contribution the homeowner has to make towards a flood claim – is more than £10,000.

"I really feel for those who, through no fault of their own, are living in places that are becoming more prone to flooding. It's not as if there hasn't been plenty of time to come up with an answer, since the decision to end the statement of principles by June this year was taken five years ago."

Mr Douglas says that the solution offered by the Association of British Insurers, on behalf of the insurance industry and known as 'Flood Re', is the best way forward. This proposes a levy on every household of up to £15 per year to build up a fund to meet future major flood disasters, like the events in 2007 and 2012. However, it requires the government to provide an 'overdraft' to fund any major flood event that might happen soon after a deal is struck, which – if on the same scale as the 2007 devastation – could cost up to £3bn.

"The government has previously made it clear that it is not willing to sign such a blank cheque," Mr Douglas points out. "But it's hard to see what other options there are. If left to market forces, thousands of homes would effectively be uninsurable with obvious consequences for their value and mortgageability.

"It is vital that the government shares some of the burden of a risk that the government's own chief scientist has warned will only increase."

27 March 2013

* Professor Sir John Beddington, the government's former chief scientist, said during his last week in office that there is a "need for urgency" in tackling climate change.

He suggested that "we are going to have more droughts, we are going to have more floods, we are going to have more sea surges, and we are going to have more storms" that will affect us over the next 20 to 30 years. Prof Sir John Beddington added: "The evidence that climate change is happening is completely unequivocal."

Source: BBC News, 25 March 2013.